The subsidization of mega-banks through society and the government.
I think the author could clarify how these subsidies function with what I assume to be interest rates and the opportunity cost of diverted tax-payer money in the short-term. From my current understanding, though hesitantly yielding to my intuition, banks are on the recovery to fully paying down bail-out funds as deleveraging occurs. Bank of America, for instance, has paid down the balance of government money as they continue to service mortgages and collect on outstanding debt.
Fixated still upon this intuitive suspicion, I similarly question the role of political contributions in shaping banking regulations: advocacy for the freer movement of money is funded by its profitability awarded to loan and investment institutions in the short-term. This lobbying or rent-seeking, when influential, disbands capital requirements with a concerted effort i.e. intrusive contributions or the tooled manipulation of academics or any other permeation into the ostensibly reliable ranks of isolated rating agencies. But from here, however, I cannot see a direct link between government expenditure and JP Morgan's recent loses, at least in this essay explicitly.
Banking is a public good to the depth it functions with the fundamental drivers of our economic well-being such as investment and saving. The government therefore has an obligation to ensure its health and efficacy. But in providing a short-term tax payer bailout after the 2008 banking crisis we shielded the careless and fraudulent activities fueling the boom period from being severely punished.
And still today we see little stringency upon regulation and transparency that could better pin-point illegal instruments of rent-seeking that hide, in the form of proprietary secrets and convoluted debt-packages, the real risks that ultimately have consequences on the composition of commercial loans and the levels of confidence, voiced through the government and a variety of rating agencies, in the capital debt markets. Transparency is key, and when it is obscured throughout far-reaching leverage, not even the central banks could resist further extending the credit lines. It seems, and insomuch I agree, that it was probably a combination of hidden information on JP Morgan's balance sheet and its risk-bearing assets that caught the previously responsible investment bank off-guard. But without pressing upon federally insured funds, how does this result in government subsidization?
An obvious problem seems to be the overlap of the political sphere with the banking industry, most potent within the central banking system. Managers of major private banking institutions simply do not have a role on the regulative board of a central banking system because their direct monetary intercourse with the procession of these stipulations keeps them from staying unbiased and uninvested. It seems furthermore that political contributions work against this ideal.
These managers, in gaining access to policy circles and receiving protection from bankruptcy after their risky investments, are politically dazed by short-term self-interest rather than long-term sustainability at smaller profit margins. I think the baseline solution is to impose strict separation of federally insured funds and those other monies used to create leverage. If these funds were not so heavily sold off and repackaged, speculation would not as drastically lopsided the asset sheets of these multi-purpose institutions. This, along with much larger capital requirements, would have materialized the liquidity to a larger proportion of deposit demands, allowing for a tougher market slam to this back-door flipping of deceptive mortgage-backed securities and other debt packages as only a half-hearted government resuscitation intervened for the exacting purpose of a public guarantee.
I hear those remarks still lingering which place the functionality of our entire banking system on the willfulness of the wealthy to continue crediting and making investment. This implies that only due to the massively disproportionate wealth held in their hands do we continue to see their express condolence. That is absurd. These bankers will continue to disperse their money to its most profitable location, and that does not mean hoarding it oversea, even after the crisis as such. More responsibility needs to be placed on their back through the regulations that can signal this reoccurrence, consequently chipping at some of their risk-bearing profits, as well as with debt forgiveness and readjustment. This is where government aid is most useful, and Obama has made that agenda clear.
So it seems from this depiction that government subsidies occur as a byproduct of that greased locomotion which circularly drives deregulation with overbearing political contribution in the form of transfers and political positions and back again. These exercises are conducted by the political-economic floodgate operated by the directors of our central banks. It is here we fund government debt and route capital transfers with interbank loans. It is from here, in the midst of the housing crisis, where the lifeblood pumped into organs degraded by poisonous debt.
Given that these loans are supplied with the expectation of full repayment, at low interest rates nonetheless, where is the government subsidy: is it the relative inefficacy of this expenditure to one arguably more publicly beneficial: did we simply reinforce the corporatism that remains risk-averse by a government sanctified push of debt totally onto the adjusted backs of middle-class America, in effect subsidizing loss at their cost?
It is clear that the failure of risk-borne investment did not weigh on the pockets of these bankers that now bathe in this political-economic pool of luxury. If these are the indirect externalities framed here as the basis of a government subsidy it has not been substantiated along the lines of opportunity cost of government expenditure nor the other intricate forms of risk-aversion or tax foregoing or any other means to pad the wealthy pockets when they should otherwise be infiltrated and restructured.
It seems that our government subsidized the banking industry in covering their risk because they are too big to fail. Again, pertinent solutions necessarily involve capital requirements and transparency into the location of government insured deposits.
The author is portraying an overly contentious global political environment that ignores the mutual incentives behind economic coalition, a separate, though of course at times overlapping, regime from that of an international discussion on the spreading of democratic principles.
Yes, the call for humanitarian intervention may not carry a flock of democratic backing especially in realizing the heavy implications behind nation-building in Iraq and Afghanistan. Furthermore the United States clearly cannot continue to carry out endeavors as such, that may benefit the global economy nonetheless, on their own. But it is doubtlessly inclined to meddle, without much recoil, in conflict areas specific to contained regional conflict that will implicate the global economy even minimally, most often regarding the supply of oil and other resources such as across Africa.
Democratic coalition is more likely when these issues result in wide-reaching consequences. These alignments may even create balanced fissures in the UN Security Council given that some of these economic issues, such as Iran's supply of oil to China, will not effect current relations with authoritarian regimes, or democratic regimes for that matter. And I agree that democracies are not automatically disposed to aiding one another.
It will be interesting however to see how these economic interests, distinct from contained humanitarian violations, will pressure diverse states toward acting within volatile regional instabilities, even including China and Russia, by coalescing and using military force when necessary.
Procyon: I think one of the worst case scenarios is to push debt down the road by creating more of it in the short-term accompanied with austerity measures. If public expenditure drops out at the same time as taxes increase and commercial and investment banks attempt to collect on their debt it will spell disaster--most likely destroying aggregate demand and syphoning money to international sources that are absolutely unconcerned with the long-run prospects for growth and repair. Nonetheless, banks must not be allowed to fail. The money supply needs to be steadied enough so that investment and the entire banking system do not fail. Debt needs to be restructured so that it is not simply adjusted onto the backs of debtors for down the road and problematic deleveraging to occur. At least if we hope to put the Greeks back on their feet again and allow them to make their own steps into a more healthy integrative future. Interest rates cannot sore through the rough, and there cannot be a liquidity crisis that pits the ranks of a global banking system against each other down to the last Greek citizen's foreclosure and repossession. Interbank loans must be upheld, public debt even increased, so that output rises giving us the opportunity to manage capital flows more diligently, regulating the pace of growth that can ensue. Rather than a booming upward spiral akin to the excessive leveraging and speculation which drove the United States' boom in the years prior to 2008.
In order to kick the can of government insolvency down the road, in effect tilting the adjustment responsibility onto the backs of debtors, Greece will abide by the stipulations of the IMF and the European Central Bank in undergoing austere fiscal policy changes. In the worst case scenario, the government will probably then increase taxes while also removing public benefits and social safety nets. In addition, commercial banks will scramble to collect on their loans by foreclosing on homes and businesses. These simultaneous effects could be shattering to aggregate demand. In result, these central banking institutions avoid effectual restructuring that would extend repayment and uphold expenditures in the short-term. Instead, expedient deleveraging is given priority and the money supply dries up.